## IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

_______________



### m 99-50704

Summary Calendar

_______________



### In the Matter of: MARSHA LYNN DEISON,

Debtor.



### AT&T UNIVERSAL CARD SERVICES CORPORATION,

Appellant,

VERSUS



### MARSHA LYNN DEISON,

Appellee.

_________________________

Appeal from the United States District Court

for the Western District of Texas

(A-99-CV-267)

_________________________

January 18, 2000

Before SMITH, BARKSDALE, and

PARKER, Circuit Judges.

JERRY E. SMITH, Circuit Judge: *

Marsha Deison accumulate d $3,971.05 in

cash-advance credit-card debt only a few days

before declaring bankruptcy. 1 The bankruptcy

court found that her testi mo ny rebutted the

statutory presumption that debt a cquired in

this manner was accumulated without the

necessary intent to repay it, and it thus found

the debt dischargeable. AT&T Universal Card Services Corporati on (“Universal”) appealed

to the district court, which a ffirmed. We

affirm the decision of the district court.

I.

* Pursuant to 5 T H C IR

. R. 47.5, the court has

determined that this opinion should not be

pu blished and is not precedent except under the

limited circumstances set forth in 5 TH C IR

. R. 47.5.4.

1 We present disputed facts in the light most

favorable to the verdict.

## 2

Deison held a credit card issued by

Universal, with a credit line of $4,500.00, from

July 26, 1994, until the beginning of 1998.

She made regular use of the card during most

o f that period. In a four-day period fro m

December 30, 1997, through January 2, 1998,

however, she made four cas h -advance

withdrawals, t otaling $3,903.50. On

December 30, 1997, she took $400.00 through

two cash-advance transactions of $200.00.

The following day, she took $3,200.00 in cash

through an advance at a bank. On January 2,

1998, she took an additional $300.00 in cash.

This spree represented a substantial

increase in activity from previous months and

a chan ge in Deison’s buying and spending

habits. Although her income had declined in

1996 by $7,000 from the prior year, it

re m ained constant in 1996, 1997, and during

the first month of 1998. As of the filing date,

her net monthly income was $1,806.78.

From 1996 th

ro ugh January 1998, Deison

made $ 21,423.80 in merchandise purchases

and cash advances on her various credit cards

“to help make ends meet.” As of the filing

date, her monthly expenses were $1,924.46

without regard t o her credit card obligations,

and her liabilities were $36,668.80.

Deison testified that she used the c ashadvance funds primarily to pay off other bills,

bills that she had previously been servicing by

drawing do wn her savings and a small

inheritance. She claimed never to have

realized th e extent of her financial problems

and said she intended, at the time she took the

$3,900 in cash advances, to repay it.

Deison met with a prof e ssional credit

counselor on or about Janua ry 17 to di scuss

her financial situation, and, on January 19, she

met with her bankruptcy attorney

. On January

26, 1998, she filed a petition for relief under

chapter 7.

II.

The bankruptcy court stated the following: If you look at this case on paper, it

definitely str ikes one, and I can

understand why it would strike Ms.

Metz [the witness called by Universal],

as being a case that shoul d be

i nvestigated and pursued, because withi n

30 days of bankruptcy you have $3900

being taken in cash advances when that,

one, never happened before and, two, it

was out of line with what one woul d

expect in view of the debtor’s income.

Nonetheless, the court entered judgment for

Deison and dis missed the complaint, finding

that she intended to pay off the cash-advance

withdrawals, thus rebutting t he presumption

that h e r withdrawals were fraudulent and

defeating Univer s al’s attempt to prove actual

fraud.

III.

The bankruptcy court’s conclusions of law

are reviewed de novo

. Y ou ng v. National

Union Fire Ins. Co.

, 995 F.2d 547 (5th Cir.

1993) ( citing Allison v. Roberts

, 960 F.2d 481

(5th Cir. 1992)). The bankruptcy court’s

findings of fact are binding on the district court

and this court unless clearly erroneous. When

the bankruptcy court’s determination has been

approved by the dist rict court, we do not

disturb it except for the most cogent reasons.

See Boydston v. Sears, Roebuck & Co. (In re Boydston)

, 520 F.2d 1098, 1100 (5th Cir.

1975). Harmless error does not const itute a

valid basis for reversal. F ED

. R. C IV

. P. 61.

## 3 IV.

Section 523 of the Bankruptcy Code details

the circumstances in which certain debts will

not be discharged in bankruptcy, among them

being debt accrued “for money, property

,

s ervices, or an extension, renewal or refinancing of credit, to the extent obtained by

false pretenses, a false representation, or actual

fraud, other than a stat ement respecting the

debtor’s or an insider’s financial condition.”

11 U.S.C. § 523 (a)(2)(A). Wi th regard to

certain types of credit c ard debt, the Code

makes a special provision:

[F]or purposes of [1 1 U.S.C.

§ 523(a)(2)(A)], consumer debts owed

to a single creditor and aggregating

more than [$1,075] for “luxury goods or

services” incurred by

an individual

debtor on or wit hin 60 days before the

order for relief under this title, or cash

advanc es aggregating more than

[$1,075] that are extensi ons of

co nsumer credit under an open end

credit pl an obtained by an individual

debtor o n o r within 60 days before the

order for relief und er this title, are

presumed to be nondischargeable.

11 U.S.C. § 523(a)(2)(C).

It is undisputed that the debt Deison

accrued through her cash-advance wit hdrawals

qualified, under this section, as presumptively

nondischargeable. The bankruptcy court,

however, found that the evidence in the record

overcame the presumption.

As Universal admits, no published c ircuit

court opinion has discussed the presumption

created by § 523(a)(2)(C) or the quantum of

proof necessary to rebut it. In an unpublished

opinio n, however, in S ignet Bank/Va. v.

Rawoot

, 1993 U.S. App. LEXIS 32091 (4th

Cir. Dec. 10, 1993) ( citing FCC Nat’l Bank

Card v. Orecchio (In re Orecchio)

, 109 B.R.

285 (Bankr. S.D. Ohio 1989)), the court held

that “[t]o rebut this presumption, Mr. Rawoot

was required to ‘raise [] a substantial doubt in

the mi nd of the [bankruptcy judge] as to the

existence of the presumed intent [to defraud his creditors].’” R awoot

, id. at *4 (brackets in

original).

A number of bankruptcy courts have dealt

with this question. In O recchio

, the court analyzed the legislat ive history of

§ 523(a)(2)(C) and concluded that it

seems to indicate that a debtor needs to

do much more than si mply present

evidence which could support a contrary

result. Rather, the debtor must

demons t rate non-fraudulent intent in

connection with that obligation. Such

evidence need not be of the same clear

and convincing nature as the creditor is

r equired to show to invoke the

presumption, but the Debtor’s rebuttal

evidence must raise a substantial doubt

in the m ind of the trier of fact as to the

existence of the presumed intent.

Orecchio , 109 B.R. at 289-90. Similarly, in

J.C. Pe nney Co. v. Leaird (In re Leaird)

, 106 B.R. 177, 180 (Bankr. W.D. Wis. 1989),

t he court said, “To rebut a presumption of

fraudul ent i ntent under 11 U.S.C.

§523(a)(2)(C), the debtor must directly attack

the presumed fact with suf f icient evidence to

support a finding that the fraudulent intent did

not exist.” 2

2 See also Chase Manhattan Bank v. Sparks (In

re S parks) , 154 B.R. 766 (N.D. Ala. 1993);

Central Fidelity Nat’l Bank v. Powell, 213 B.R.

306 (Bankr. W.D. Va. 1997); Bank One Lafayette,

N.A. v. Larisey (In re Larisey)

, 185 B.R. 877, 881

(Bankr. M.D. Fla. 1995).

## 4

In AT& T Universal Card Servs . v.

E llingsw orth (In re Ellingsw orth)

, 212 B. R

. 326 (Bankr. W.D. Mo. 1997), the court used

language of particular relevance to this case:

Th e legislative history of section

523(a)(2)(C), however, indicates t hat

Co ngress intended for a debtor to do

more than simply present evidenc e that

could support a contrary r esul t.

Congre ss was concerned with what it

considered egregious conduct on the

part of debtors who incurred debt at a

point when their insolvency should have

been obvious. In O recchio the Court,

theref o re, held that a debtor must offer

substantial and believable evidence

contrary to the presumed intent in order

to de mo nstrate non-fraudulent intent.

Otherwise, the usefullness [sic] of the

presumption in section 5 2 3(a)(2)(C) is

destroy ed.

Ellingsw orth

, 212 B.R. at 340-41 (footnotes

omitted). Courts have also recognized that in

a ttempting to ascertain a debtor’s subjec tive

intent, the debtor’s test i mony is of no probative value. “[S]ince a debtor will rarely

admit a lack of intention to repay, such intent

must be inferred from the totality o f the

circumstances of the case at hand.” Chevy

Chase Bank FSB v. Kukuk (In re Kukuk)

, 225

B.R. 778, 786 (B.A.P., 10th Cir. 199 8). 3 As

the court said in LA Capitol Fed. Credit Union

v. Melançon (In re Melançon) , 223 B.R. 300

(Bankr. M.D. La. 1998),

no debtor is going to take the stand and

testify against himself. Every debtor in

a Section 523(a)(2)(A) action invo lving

cash advances is going to say th at he

intended to repay the money. Given that

this is an inflexible rule of nature, the

fact that one particular debtor in one particular case adheres to the rul e

doesn’t establish the debtor’s intent

. . . . I t is insufficient for a debtor to simply

state that he always planned to pay the

money back “somehow” (we have a

mental image of cash suddenly falling

from the skies, like manna from heaven).

If the debtor has no idea how the money

will get paid back, or if it will get paid

back, then he may hope to repay 

### S S he

m ay even want to repay 

### SS bu t he

certainly does not intend to repay.

Melançon , 223 B.R. at 318, 321.

Taken together, these cases suggest that the

bankruptcy court should have looked for

“substantial evidence” that the debtor did not

intend to defraud by her cash-adv a nce

withdrawals i n t he sixty days before filing

bankruptcy and that a completely unsupported

assertion of lack of intent will not suffice. We

then review the bankruptcy court’s finding of

substantial evidence for clear error.

Deison did aver that she did not inten d to

fail to pay back the c ash advances; the

bankruptcy court believed her. Facts in the

record support that belief.

3 See also Citibank (S.D), N.A. v. Eashai (In re Eashai)

, 87 F. 3d 1082, 1087 (9th Cir. 1996)

(“Since a debtor will rarely admit to his fraudulent

intent i ons

. . . .”); AT&T Universal Card Servs.

Corp. v. Rembert

, 14 F. 3d 277, 282 (6th Cir.

1998).

## 5

Reading the record in th e light most

favorable to t he finding, we conclude that

Deison, a relatively unsophisticated consumer, had always paid at least the minimum balance

on her credit cards before her bankrup t cy,

even as she accrued over $21,000 in debt in a

little more t han a year. This evidences her

intention to continue serv icing her debt

w it hout fail and suggests that she might have

been totally unaware that she had “run out of

rope.” Too, Deison was employed; she was

not entirely ber eft of income. Moreover, her

uncontroverted tes t imo ny was that she used

the funds withdrawn to satisfy other

liabilit ies 

### SS not t o purchase luxury

goods or

make other frivolous uses of the funds.

Finally, it appears that the transactions had

been completed for three weeks before Deison

consulted a consumer-credit spe cialist, who

apparently alerted her to the precariousness of

her position.

In Anastas v. American Sav. Bank

, 94 F.3d

1280, 1284 n.1 (9th Ci

r. 1996), one of the

cases to which Universal points in s u pport of

i ts position, the court notes a list o f none x clusive factors that might be considered in

determining whether there is intent to repay:

(1) the leng t h o f time between the

charges made and the filing of

ba nkruptcy ; (2) whether or not an

attorney has been consulted concerning

t he filing of bankruptcy before the

charges were made; ( 3 ) the number of

charges made; (4) the amount of the

charges; (5) the financial condition of

the debtor at the time the charges were made; (6) wh et her the charges were

above the credit limit of the account; (7)

whether the debtor made mult iple

charges on the same day; (8) whether or

not the debtor was emplo yed; (9) the

debtor’s prospects for employment; (10)

the financial sophistication of the debtor;

and (1 2) whether the purchases were

made for luxuries or necessities.

Id. ( citing Eashai

, 87 F.3d at 1087-88). While

we have no intention of adopting this twelvepart test as determinative, we do note t h at many of the ways in w hich o thers have

attempted to d et ermine whether fraudulent

intent exists suggest t hat Deison has shown

none. Even with reference to these factors, we

might, de novo , have come to a different

d ecision than did the bankruptcy court about

whether Deison’s story created substantial

doubt of intent. That court, however, did not clearly err.

V.

Universal also argues that, even if Deison is

found t o have rebutted the presumption that

her cash-advances worked fraud, it made, as a

matter of law, the case for fraud, which would

still render the debt undischarged u n der

§ 523(a)(2)(A). A showing of fraud requires

a showing of int e nt 

### SS

the same intent that the

bankruptcy court found lacking when it found

that Deison h ad rebutted the § 523(a)(2)(C)

presumption. For the same reasons, we

conclude the bankruptcy court did not clearly

err in finding that Deison lacked the requisite

intent necessary to have committed fraud

under § 523(a)(2)(A).

VI.

Universal contends that the bankruptcy

court applied the wr o ng law in determining

whether Deison commi t t ed fraud against

Universal, and the wrong finding of intent in

analyzing the fraud. To the extent that

Universal has demonstrated error, however, it

has not established harm.

In the beginning of its review of applicable

law, the bankruptcy court stated that "[t]he

state law defini

t io n of fraud generally is a

representation knowingly m a de, knowingly

false, with the intent that the other party rely

u pon it and that they are damaged as a re sult

of that reli ance." In determining the

nondischargeability of a debt, federal common law, not state l aw, control s. In F ield

, the

Court stated tha t “[w]e construe the terms in

§ 523(a)(2)(A) to incorporate the general

common law of torts, the dominant consensus

of common-law jurisdictions, rat her than the

law of any particular State.” Field

, 516 U.S.

at 70 n.9. The Court then explained that "the

most widely accepted distillation of the

## 6

common law o f t orts was the Restatement

(Second) of Torts (1976) . . . ." Id. at 70.

Universal then points us t o Melançon , in

which the bankrup t cy court reviewed the

application of the Restatem ent to

§ 523(a)(2)(A).

Section 525 of the Restatement

provides: One who fraudulently makes

a misreprese nt ation of fact, opinion,

intention, or law for the purpose of

i nducing another to act or to refrain

from action in reliance upon it, is subject

to liabilit y to the other in de ceit for

pecuniary l o ss caused to him by his

justifiable reliance upo n the

misrepresentation

. . . . [T]hat the use

of a credit card to obtain a cash advance

included with it a promise that the party

obta ining the cash advance would pay

the money back . . . .

According to the Resta t ement

(Second) o f Co ntracts, a promise is a

manifestation of an intention to ac t or

refrain from acting. The Restatement of

Torts states that a promise automatically

includes an assertion that the party

making the pro m ise intends to fulfill it.

The credit card agreement, then, can be

viewed as a co ntract that sets forth

certain agreed terms for future contracts that are contemplated by the parties. If

a credit card holder decides to exer c ise

h is rights under the agreement a n d

borrow some mone y

, he can do so

w ithout waiting for bank approval, and

without paperwork. He simply goes to

the nearest ATM, puts in this card,

pushes a few buttons, and takes his cash

. . . . .

But a loan is still a loan

. . . . When

the card holder inserts the card into an

ATM, he is, in one step , asking for a

loan and promising to repay it i f it is

obtained

. . . . Inherent in any request

for a loan, in any

making of a loan by

two partie s, is a promise by the

borrower to repay the money borrowed. This is no legal fiction.

Melançon

, 223 B.R. at 307-08, 3 11, 316.

Thus, in conformity with the Restatement, the

use of the credit card, be it for a cash advance

or a purchase, is conduct that constitutes a

representation that "I will repay the loan."

All of this is true, but all of it illustrates why

the bankruptcy court’s application of the

wrong law of fra uds worked no harm.

Universal points us to Mel ançon to

demonstrate that, had the bankruptcy court

employed the Restatement standard, it would

have realized that taking a cash advance

implicit ly makes t he “I will repay”

represen t ation. Of course, the bankruptcy

court noted that

I believe the credit card agreement

makes it clear that the credit card holder

makes an express

. . . statement they will

i n fact repay the debt, and that w hat

courts have said is that in order to curb

real abuses

. . . there should be layered a presumed int ention that the party is

acting in good faith, that is, that not only

do you have an express statement that “I

intend to repay it,” but t hat on top of

that the facts and circumstances of that

particula r debtor are such at that time

that that is a reasonable belief. I think

that’s pretty much where the law sits.

Thus, though the bankruptcy court applied the

wron g law of fraud, that error was harmless,

because the court performed th e same

functional analysis that Universal would have

had it apply under the Restatement’s definition

of fraud.

Unive rsal also argues that the bankruptcy

co urt erred in that it mentioned that “I do

think that

. . . . Ms. Deison did not have any

contemplation of

filing a bankruptcy petition

until after this transacti on took pl ace.”

Universal points out that the intent analysis to

be undertaken is whether the debtor intended

to repay the loan, not whether he intended to

file bankruptcy. The cases cited above support

this position. The bankruptcy court’s error

## 7

was one of locution

rather than analysis 

### S

S it

simply misspoke.

This is shown by the court’s statement that

“there should be layered a presumed intention

that the party is acti ng in good faith, that is,

that

. . . you have an express state ment that

‘I intend to repay it.’” This passage illustrates

that t he court was well aware of the proper

standard when it explicated t he relevant legal

analysis.

Finally, Universal

points to the

Restatement, § 530, Comment d, and to

Boydston

, which

acknowledge that, in the

words of the Restatement, “[f]radule nt intent

m ay, however, be proved by circumstantial

evidence. Thus, an intent not to pay for goods

purchased may be shown by the promisor’s

insolvency.” R E STATEMENT (S ECON D ) OF

T ORTS § 530, cmt. d. (1976); see Boydsto n

, 520 F.2d at 1101. From this, Universal

concludes that “as M s

. Deison could not

afford to repay her debts the trial court should

have, as a matter of law under the Restatement

of Torts, inferred that she did not inten d to

repay the debt.”

We disagree with this logic; that insolvency

may be used to demonstrate intent not to

repay certai nly does not r equire the

conclusion, as a matter of law, that a consumer

debtor who borro w s when insolvent has

committed fraud. Such a requirement would

in fact render the § 523(a)(2)(C) presumption

unrebutt able, because almost all consumer

debtors are going to be technically insolvent in

th e days before their declaration of

bankruptcy. This is not the law.

AFFIRMED.